Economics is a dismal and fake science concocted by bourgeois snake oil salesmen to seperate the economic from the political, social and cultural. There is not, nor can there ever be, an objective economic reality. The economy is the product of social relations and that’s it – end of. Human beings have the capacity to make or unmake any economic reality they wish and they don’t need macroeconomic prescriptions from the sort of incredibly low vermin and diseased scumbags who choose to call themselve “economists”. When confronted with neoliberal human trash liberals and social democrats can only respond with counter techocratic “solutions” – missing the point that they’re playing a game they can never win. Instead all progessives should look and give support to the creative social praxis of social movements as the real agents and hidden authors of human progress.

It is life imitating art: http://www.youtube.com/watch?v=d0nERTFo-Sk

Insofar as the recovery is artificial it needs to be ended so that we can have a proper recovery driven by private investment.

Krugman may have won a Nobel prize but that doesn’t mean he’s automatically right. I believe he won his prize for his trade theory. Hayek won a Nobel prize for his monetary theory (which predicted booms and busts and was also used by Austrian School economists to predict the recent boom and bust).

Krugman was calling for the US Government to lower interest rates almost a decade ago. The result of these lower interest rates was, of course, the housing bubble.

2. Richard

Insofar as the recovery is artificial it needs to be ended so that we can have a proper recovery driven by private investment.

Here is the FTs Martin Wolf who is generally considered the best financial journalist in the world, answer to what you imply is the private sector being driven out by public spending.

‘ Jumps in fiscal deficits are the mirror image of retrenchment by battered private sectors. In the US, the financial balance of the private sector (the gap between income and expenditure) shifted from minus 2.1 per cent of GDP in the fourth quarter of 2007 to plus 6.7 per cent in the third quarter of 2009, a swing of 8.8 per cent of GDP (see chart). This massive swing occurred despite the Federal Reserve’s efforts to sustain lending and spending. Similar shifts occurred in other crisis-hit countries.

If these governments had decided to balance their budgets, as many conservatives demand, two possible outcomes can be envisaged: the plausible one is that we would now be in the Great Depression redux; the fanciful one is that, despite huge increases in taxation or vast cuts in spending, the private sector would have borrowed and spent as if no crisis at all had happened. In other words, a massive fiscal tightening would actually expand the economy. This is to believe in magic. ‘

I imagine he is being polite by using the word ‘ magic ‘ instead of dogma.

‘ Krugman was calling for the US Government to lower interest rates almost a decade ago. The result of these lower interest rates was, of course, the housing bubble. ‘

Strange how Canada right next door had similar interest rates and no housing bubble and has an unimpaired banking sector. I guess the Canadian governments strict regulation of their banking sector must have something to do with it. However, government regulation is apparently always bad. Except when it is not.

Oh and the conclusion to his article.

‘ Moreover, a massive fiscal tightening today would be a grave error. There is a huge risk – in my view, a certainty – that this would tip much of the world back into recession. The private sector must heal. That, not fiscal retrenchment, is the priority. ‘

Incidentally his daughter Rachel is a special adviser to David Cameron.

in fact, the arithmetic tells you that what Britain does in the next year or two is virtually irrelevant to its long-run solvency.

That’s not the point. We’re not talking about long-term – “In the long run, we are all dead” – we’re talking about what the best thing for now is. How do we stop an even greater drop in our living standards? How do we prevent a second wave of recession causing even more unemployment and bankruptcy?

I don’t know whether raising or cutting government spending will do that. Economists can’t even agree on it – which does make it seem rather odd that either side of the argument can be so certain when they tell the other one that they are wrong.

Krugman on the Euro too this week

http://www.nytimes.com/2010/02/15/opinion/15krugman.html

Summary: it was (is) a dumb idea

As an outsider to economics I probably showed myself up by laughing inwardly to read that hayek got a Nobel for predicting booms and busts. Is it true? I wish I could get a Nobel for predicting something that already happens but only after its happened. What a funny business economics is!

I know there are loads of posters to this site who love to argue economics but the problem remains that as a discipline it has failed to predict anything better than simply tossing a coin. It is simply politics at a remove, you choose the theory most suited to your politics and use it to give a jargon-heavy pseudoscientific cachet of respectability, even inevitability, to the policies you want to adopt.

On another thread I was told that economics is complicated. Well so are lots of things. When I worked in pharmaceutical research I investigated drug actions at a cellular level, which is bloody complicated. There are techniques developed over decades and refined and added to that allow us to probe closely what happens, even to a molecular level. These were developed painstakingly by trial and error based on experiment and observation, not by arguments in the Senior Common Room and a few measures of retail prices and money supply.

#1 – bloody hell, I’m off to hand in my economist resignation, and join the creative social praxis of social movements as the real agents and hidden authors of human progress!

#8 Hayek “was one of the few economists who gave warning of the possibility of a major economic crisis before the great crash came in the autumn of 1929.” (but really he’s remembered for his work on how markets process information)

@9

One of the few is just my point. We’ve had booms and busts since but I haven’t noticed any effective predictions of when. Its all very well to recognise that there are cycles in economies, but if you’ve failed to find a consensus within a discipline that can predict when a boom, bust or crash is going to happen better than simply tossing a coin it doesn’t say much for that discipline. You’ve had since 1929 to build on Hayek’s work (if there’s anything more than luck to build upon).

Its notable that amongst the most vociferous climate sceptics are economists raving because their free-market religion has just failed again and they can’t face the truth.

“Its notable that amongst the most vociferous climate sceptics are economists raving because their free-market religion has just failed again and they can’t face the truth.”

Erm, wouldn’t a free market by its nature have booms and busts? At least till we have perfect information. And if the free market has failed, why has the replacement system not happened? I don’t think socialism has been reintroduced (if only because the current government wouldn’t know a socialist if he hit them in the face with his cloth cap), or anarchy (there are still property rights) or communalism (I still own my house and car) or anything else…

As for worshipping the free market, isn’t that just silly? Anyone who worships a process is not only mildly deluded but also going to have to explain how that helps them (It may explain one or two of the most manic economists though – they want to make a sacrifice to their God). It would be like worshipping the idea of global warming – a silly accusation rather than a helpful category of fact.

@1: “Economics is a dismal and fake science concocted by bourgeois snake oil salesmen to seperate the economic from the political, social and cultural. . . ”

From long experience, that’s the usual prelude to nonsense and, often woeful, unintended consequences.

I’m not a fan of free markets – the whole notion is nonsense without reference to the complex infrastructures of laws and regulations to protect property rights amongst many other considerations – but I don’t believe water runs up hill of its own accord.

Economists are no more prone to disagree than politicians, lawyers, medics or climate scientists.

10. Yurrzem!

@9

‘ One of the few is just my point. We’ve had booms and busts since but I haven’t noticed any effective predictions of when. Its all very well to recognise that there are cycles in economies, but if you’ve failed to find a consensus within a discipline that can predict when a boom, bust or crash is going to happen better than simply tossing a coin it doesn’t say much for that discipline. You’ve had since 1929 to build on Hayek’s work (if there’s anything more than luck to build upon). ‘

I don’t know why the lack of predictive power should be seen as a failure. The models predict that downturns some catastrophic will occur. However, they also say that the timing can never be predicted. Tomorrow if the population behave as they do every other day the banking system will function and be solvent. However, if every person and corporate try to withdraw all their funds the banks will be insolvent and collapse. If a credible model could predict that next Tuesday the stock market was going to fall 20% and all market participants knew the prediction. It would not fall next Tuesday but it would fall today. If people believe the market will rise then it will rise as they act on their beliefs by buying. If enough people believe it will fall then it will fall as they sell. Only opinion gives assets monetary value and if opinions change values will change. A catastrophic crisis will occur when consumers and institutions deviate far from the norm but no model can predict when. That is at the heart of rational expectations.

‘ Its notable that amongst the most vociferous climate sceptics are economists raving because their free-market religion has just failed again and they can’t face the truth. ‘

I don’t know what gives you that impression. I can’t think of one British economist that I’ve ever read who is a denialist or sceptic. Every prominent economist would be on the side of science. What most of them recognise is firms and consumers operate in markets and measures to reduce emissions will work best by imposing costs and incentives.

I’ve been desperately scanning the news on the web for an update about that coming Second Letter from more prominent economists – reportedly urging the government to keep up the spending – which is going to top that letter in the Sunday Times of 14 February signed by 20 prominent economists:
http://www.timesonline.co.uk/tol/comment/letters/article7026234.ece

So far, I’ve found nothing. Why is that? Could this in today’s news on Thursday be the simple explanation?

“The state of the UK’s public finances deteriorated further in January, according to official figures.

“The Office for National Statistics said the government borrowed a further £4.3bn last month – much more than expected.

“Analysts had expected the government to repay about £2.8bn of its debts, but tax income for the month was lower than forecast.

“Government spending also rose sharply, the ONS said.

“The figures mark the first January that the government has been forced to borrow money since records began in 1993.”
http://news.bbc.co.uk/1/hi/business/8521587.stm

I don’t see what difference the net borrowing figures make, Bob. All the pressure is on the revenue side, especially the lack of capital gains 2008/09 showing up in the capital gains tax receipts for last month. Borrowing is broadly on target for 2009/10. If anything it strengthens the argument to continue supporting the economy until revenue recovers.

Richard: “If anything it strengthens the argument to continue supporting the economy until revenue recovers.”

No one knows how long that is going to take given the state of the financial markets and – importantly – the impact that incoming regulatory reform of financial markets and institutions will have on the profitability of the institutions. Already, there are reported noises from the banks that their customers will have to pay the additional costs entailed by mooted regulatory reforms.

The background worry to all this is that the continuing large size of new Treasury debt issues will force up yields and borrowing costs.That hasn’t happened to Britain’s government debt so far but it remains a factor.

The unhappy fact is that we are in one of those situations at present where the realistic policy options both carry unwelcome downside risks – a tougher fiscal stance to put our fiscal affairs onto a sustainable basis runs the risk of a double-dip recession but continued heavy borrowing carries the risk of pushing up borrowing costs for the public and private sectors.

The sad fact is that we are already in this territory as many of those in the NHS ambit will appreciate:

“The National Health Service can make the £15bn to £20bn of savings needed during the next three years without damaging the quantity or quality of care – indeed while even improving the latter – according to David Nicholson, the NHS chief executive.”
http://www.ft.com/cms/s/0/6fba7dfe-e683-11de-98b1-00144feab49a.html

On the basis of experience, sceptics are to question whether the NHS can lose £15-£20 billion out of its c. £100 bn annual budget without that affecting the quality of patient care.

Readers here may be interested in this piece on debt-sustainability in last Saturday’s The Economist (13 Feb):

“MARKETS have suddenly woken up to the idea that not all government debt is risk-free. There is a long and not very honourable history of sovereign default, either explicitly or implicitly via inflation and currency depreciation.”
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15498265

By Britain’s miserable ranking in the table shown there, the situation is grim and perhaps goes someway towards explaining the motivation for that letter signed by 20 prominent economists in the Sunday Times of 14 February.

@13
Yeah, I suppose I’ll grant you the same leeway as I would a weather forecaster. Three days ahead is as good as they get. I don’t know if any economists have tried anything comparable within their discipline.

However, weather forecasters also investigate climate, which is weather aggregated over a longer period, if you like. Despite the denialists’ claims they seem to manage to predict stuff quite well. I would have to stretch my charitability to say that economists do so well. No overall consensus: if everyone predicts something different someone is likely to be right.

Oh, and University of Guelph economist Ross McKitrick and his chum Steve McIntyre have been prominent in promoting climate conspiracy theories happily picked up on by corporations and swivel-eyed righties ever since.

Here is the “second letter”, signed by 60 prominent economists:
http://www.ft.com/cms/s/0/75b2481e-1cb5-11df-8d8e-00144feab49a.html

The key sentence of the lettet is this:

“There is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery.”

The signatories support Alistair Darling’s fiscal plan “to more than halving the budget deficit by 2013-14, with most of the consolidation taking place when recovery is firmly established.” This compares with the 20 signatories of the letter to the Sunday Times who advocate cutting the fiscal deficit within the life time of the next Parliament – presumably, that is by 2015.

As I suggested above, the choice depends on the balance between the respective downside risks – early fiscal retrenchment risks a double dip recession but a tardy return to a sustainable fiscal position challenges the trust of the financial markets in Britain’s rather grim sovereign debt position – see the link above to the piece in The Economist last Saturday for a comparison between Britain’s position and that of other debt ridden countries.

The news reports on Friday about the deteriorating and unprecedented scale of government borrowing in January are really worrying IMO:

“The Office for National Statistics (ONS) said public sector net borrowing – the gap between the exchequer’s tax-take and its spending – was £4.34bn [in January] compared with a repayment of £5.27bn a year earlier. The figure was also much worse than the £2.8bn repayment forecast in a Reuters poll by City analysts, who in previous months had largely underestimated the state of the public finances.”
http://www.guardian.co.uk/business/2010/feb/18/uk-government-borrowing-january-record

See also the report in The Times here:
http://business.timesonline.co.uk/tol/business/economics/article7032892.ece